Mortgage Interest Deduction Future Murky?

07-Sep-2011- National Association of Realtors^®Unless you slept through the month of July, you probably picked up on the federal debt ceiling debate that dominated headlines. Although much of the press and punditry subsided after the White House and Congressional leaders reached a resolution, the legislation signed by President Obama on Aug. 2 did little to settle the deficit dispute. Instead it passed responsibility to a bipartisan “supercommittee” and placed American home owners in the crosshairs of controversy.

Rather than trimming the fat from wasteful government programs, the Joint Select Committee on Deficit Reduction may decide to hit you up for cash by cutting your mortgage interest deduction as they attempt, by Thanksgiving, to slash the U.S. deficit by $917 billion now and $1.5 trillion over the next 10 years.  

Why is the MID a target?

Although the categorization is arguably inaccurate, the federal government considers the mortgage interest deduction a “cost” of roughly $100 billion annually. Whether it’s lack of time or laziness, some on Capitol Hill are already jumping at the opportunity to reap new revenue at the cost of home owners (See Home Ownership Under Assault: 4 Issues Threaten Housing Market Recovery). Adding to MID’s risk of repeal, critics of itemized deductions have incorrectly labeled MID a perk for the rich. 

What’s the mortgage interest deduction reality?

But 65% of families currently claiming the mortgage interest deduction earn less than $100,000 per year; 91% earn less than $200,000 annually. And it saves those families an average of $3,050 a year — money that can be used for living expenses, college funds, health care, and improving home value.

Link: 7 Mortgage Interest Deduction Myths

A reduction or repeal of the MID would essentially amount to a tax increase on the middle class at an average cost of more than $3,000 to itemizing taxpayers. 

The popular tax deduction has been a part of the federal tax code for more than 100 years, helping to stimulate the economy by encouraging home ownership. In addition, housing equity has long been a source of funds for small businesses and therefore a source of jobs.

Still, some policymakers are keen to kill one of the few breaks enjoyed by American home owners — a group that already contributes 80% to 90% of all federal income tax collected yearly.

Timing may play a major role in the supercommitee’s cost-cutting pursuits. When the group first convenes on Sept. 16, they’ll have only two months to devise and pass their plan — hardly enough time to research, deconstruct, and revise wasteful programs. It becomes clear how MID could be considered low-hanging fruit. 

If the mortgage interest deduction gets tangled up in the supercommittee’s web, the outcome will be devastating for home owners, buyers, sellers, and the economy. Not only will it cost you an average of $3,000+ per year and limit your buying power, experts believe repeal of the MID would cause property values to decline by as much as 15%. 
Talk about adding insult to injury.

First Capital will be tracking developments around MID closely for the next 100 days. To stay up to date on the issue and help us to preserve the American dream of home ownership, “like” us on Facebook, follow us on Twitter.

Cashing in on rental property?

By Jeff Wallach @Money September 2, 2011: 6:07 AM ET

@FirstCapitalMtg

(MONEY Magazine)
Most of the news lately about real estate has been dismal:
Home prices are swooning, foreclosures ballooning.
There is, however, one bright spot: the rental market, where demand is up and rents are rising. That's partly because those foreclosures have turned more than 4 million former homeowners into renters, but also because many other prospective homeowners, worried about losing their jobs or housing prices falling a lot further still, are reluctant to buy now.

As with many investments, the best time to get in is when most others are sitting on the sidelines. To figure out whether you can benefit by investing in rental property, here's what you need to know.

THE CASE FOR BUYING NOW

Many factors make this a great time to invest. Mortgage rates are at a 40-year low, and homes in many areas are ultra-cheap. Meanwhile, demand for rentals has risen in more than 500 cities, according to recent Census data. That, in turn, has enabled landlords to charge more. Hotpads.com, a real estate research firm, reports that rents nationwide jumped 11.6% in 2010, to $1,320 a month.

You'll need that rental income to tide you over until home prices bounce back; in fact, the typical investor today plans to hold for 10 years, according to a survey by the National Association of Realtors.

Send Our Help Desk your mortgage or real estate questions.

If you can hang on that long, you've got a good shot at solid gains, especially if you're financing the home purchase. "Whereas leverage is dangerous when buying stocks, it can be a good long-term strategy with real estate," notes real estate investor and Columbia University adjunct finance professor Marshall Sonenshine.
The big catch: "Can you afford to hold the property that long and not need the equity for your kid's college fund?" says Sonenshine. Or whatever other pressing need might crop up.
You'll also face some tough financing rules. Most banks now require a down payment of at least 20% to 25% and evidence you have enough cash to cover six months' worth of mortgage, tax, and insurance payments.
HOW TO FIND A GOOD DEAL
Investment real estate is like produce: It's best bought locally. "Buy something you can get to in 10 minutes," says Seattle real estate investor Bill Snyder.
Familiarity with the neighborhood also limits nasty surprises like a noisy bar or a nearby development competing for renters.
Work with a local realtor who has experience with rentals and can help you assess how attractive a given home will be to tenants.

10 Best cities to buy a rental property

And while prices on multifamily dwellings haven't dropped as much as they have on single-family homes, don't ignore plexes: Intake from a few rents instead of just one will boost your cash flow; a single vacancy won't hurt as much; and you could benefit from economies of scale for things like appliances and painting. But stick to buildings with four units or fewer to avoid stricter financing requirements, such as a bigger down payment and higher mortgage rates.
Once you've identified candidates, crunch the numbers. The goal: to make sure your rental income will at least cover your loan payments, plus a 20% cushion to handle repairs, vacancies, and property management.
To figure out what you'll garner in rent, ask sellers for recent leases, says Snyder, and double-check their numbers by perusing sites like Rentometer and Craigslist for similar rentals in the neighborhood.
Assume your mortgage rate will be at least a half-point higher than rates on owner-occupied properties. Factor in insurance and property taxes, and bank on a 5% vacancy rate. Otherwise, "one empty month can kill you," says Ellie Berlin, a broker with Houlihan Lawrence in Larchmont, N.Y.

KNOW WHAT YOU'RE IN FOR
Brush up on your people skills: Owning rentals also means responding to tenant complaints, like the 2 a.m. phone call about a broken toilet. Want to palm off the grunt work? You can hire a handyman (around $45 an hour) or a management company (8% to 10% of monthly income plus a half-month's rent for filling vacancies), but the luxury will eat into cash flow.

To find your own tenants, creative ads on Craigslist are your best bet. Run credit and reference checks (National Tenant Network, at ntnonline.com, can help). And invest in small touches to make your place stand out, such as cool lighting fixtures or antique door hardware. Those will pay off when it's time to sell too.

Instant Credit Fixes – Smart and Safe or Rash and Risky?

Trying to get a mortgage home loan with poor credit can be a very frustrating venture. You may be turned down several times, and the lenders who will agree to loan you money will charge you an arm and a leg in interest fees. Traditionally, the poor credit borrower’s options have been to take the higher-cost loan or to hold off several months or years in order to build up a better credit score.

Not surprisingly however, some people have come up with a way to get around the current system. You may have seen advertisements from companies promising to dramatically increase your credit score overnight. The shocking thing is that some companies can actually do this. Whether or not such a tactic is a good idea is another issue altogether though.

Here’s how it works. You pay a large sum of money, typically around $2,000 to an instant credit repair company. The company then adds you as an authorized user on a couple credit cards owned by individuals with excellent credit. The good credit holders agree to this because the credit repair company pays them for the privilege and because they are assured that the new users will never have any real interaction with their cards or their personal information. The credit repair company is responsible for keeping that all safe.

This strategy works because the poor credit borrowers essentially take on the credit history of the excellent credit hosts. The credit repair company removes the poor credit borrowers as authorized card users as soon as the credit score goes up, but the good credit history remains permanently on the borrowers’ report.

It is estimated that a score can increase by 30-45 points with the use of just one borrowed credit card, while slots on two different cards can increase a score by 60-90 points, and having as many as five slots can net you between 150-205 extra points on your score. And all of this generally occurs within a month.

This sounds too good to be true, right? For now, it is a reality. Buying your way into a better credit score can mean the difference between acceptance and rejection for a mortgage loan as well as the difference between a prime and a subprime interest rate. It also means an immediate second chance at maintaining your finances and your credit.

Don’t expect to be able to take advantage of this tactic forever though. The Fair Isaac Company is on to the ‘instant credit repair’ scheme and intends to update its credit scoring methods within the year to take such ‘cheating’ into account.
And don’t assume because the current practices are not specifically illegal, that they are perfectly legal and legitimate. “What I've gathered from attorneys here is that it appears to be legal” technically, Federal Trade Commission (FTC) spokesman Frank Dorman has said. “However, the agency is not saying that it is legal.”

The use of borrowed credit makes lenders very nervous as it makes it harder to tell who has actually maintained a good credit record and who has simply bought their way into excellent credit. This dilemma makes their risk-evaluation methods less effective. Plus, using borrowed credit without disclosure to your lender may be considered mortgage fraud. As Ginny Ferguson, credit expert for the National Association of Mortgage Brokers recently said, “These [instant credit repair] companies are encouraging consumers to commit fraud. On a standard home loan, there's a clause that says the consumer is not omitting pertinent facts that could impact his or her ability to repay the loan,” Ferguson said.


So before you dive into one of these ‘instant credit repair’ schemes, consider carefully the dangers of buying into a quick credit fix with ‘borrowed’ credit.

The views, opinions, positions or strategies expressed by the authors and those providing comments or external internet links are theirs alone, and do not necessarily reflect the views, opinions, positions or strategies of First Capital, we make no representations as to accuracy, completeness, currentness, suitability, or validity of this information and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use.  

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Roadmap to a Higher Credit Score: http://firstcapitalmtg.blogspot.com/2011/08/dispute-any-information-that-brings.html

Mortgage News: Housing Initiatives Promoted

A top official at the Federal Reserve called for more aggressive action to help the housing market by allowing more homeowners to refinance and by converting some foreclosures into rental housing.

Home sales have been disappointing this year, with tight credit and weak demand making it harder for markets to absorb a steady stream of foreclosed properties.
"Clearly the market is not functioning as it should," said Federal Reserve Governor Elizabeth Duke in a speech Thursday in Washington.


Though mortgage rates are hovering near the lowest levels in decades and the Fed pledged last month to keep interest rates close to zero for another two years, many Americans haven't been able to refinance their home loans because they don't have enough equity or they can't qualify under rigid standards.


Ms. Duke said that policy makers should consider enhancing an existing White House program designed to facilitate more refinancing of loans guaranteed by government-supported mortgage firms Fannie Mae and Freddie Mac. Allowing more homeowners to take advantage of low interest rates to reduce their monthly payments could both lower the risk of future defaults and boost the weak U.S. economic recovery.


The White House is working on similar proposals, but they need either the cooperation of Congress or the Federal Housing Finance Agency, which regulates Fannie and Freddie and has been more skeptical of loan-assistance programs that have big upfront costs for the two.
Some bondholders have been critical of the idea of spurring a new round of refinancing, arguing it would be unfair to them because they stand to lose billions if performing loans are refinanced at lower rates. Critics also say that such intervention could also create uncertainty that would raise rates for future homeowners.


Ms. Duke dismissed those concerns by pointing to her previous banking career experience. "When I bought mortgage securities…I always knew they were subject to refinancing," she said.
Over the last two years, however, mortgage bonds have traded with an assumption that fewer borrowers would refinance because they face more hurdles. "I don't view changing that dynamic as being harmful to the markets," she said.


Average rates on 30-year fixed-rate mortgages stood at 4.22% for the week ending Thursday, according to a survey by Freddie Mac. That is near the lowest level in more than 50 years.
The current White House program, known as the Home Affordable Refinance Program, or HARP, was launched in 2009 and has helped about 838,000 borrowers with Fannie- or Freddie-backed loans through June. But fewer than 63,000 borrowers that are significantly underwater—owing more on the mortgage than the property is worth—have been able to take advantage, even though millions of borrowers with loans backed by the loan giants are underwater.


Mortgage refinancing has been muted because riskier borrowers face higher fees charged by Fannie and Freddie that banks pass on in the form of a higher rate. Ms. Duke also said that banks have been reluctant to refinance riskier borrowers under HARP because they could be forced to buy back the loan if it defaults later.


"Given the potential savings to households, the relatively low take-up on this program warrants another look at the frictions that may be impeding these refinancing transactions," she said.
Ms. Duke also endorsed an effort, being studied by regulators and administration officials, to convert foreclosed properties into rental housing.


Banks are taking back and re-selling a greater number of homes through foreclosure, pressuring prices in hard-hit markets.


Accounting rules have often led Fannie, Freddie, and banks to sell repossessed homes shortly after taking them through foreclosure, and bulk sales remain rare. Ms. Duke said that housing-market conditions were "unusual enough" to justify a different approach by banking regulators to treating how banks account for foreclosed homes held on their books.
By NICK TIMIRAOS And ALAN ZIBEL

#FirstCapitalMtg

Housing Construction Takes Steep Plunge in California

Housing production took a sharp and sudden decline in the nation's most populous state in July, posting the lowest level of permits since January 2009.

According to the Construction Industry Research Board, permits were pulled for just 2,248 housing units in July. That's 45% fewer than the same month a year ago and 53% fewer than in June. The last time construction activity dipped this low was 30 months ago, when permits for a mere 2,104 units were handed out by local building departments.

Permits were issued in July for 1,436 single-family houses, a 30% drop from June 2010 -- and a 39% slide from the previous month. Permits also were issued for 812 multi-family units, a 61% tumble from June. During the height of the housing boom, 2,248 permits in one month was considered normal in Orange County alone.
For the first seven months of the year so far, permits were pulled for 25,304 total units, down 2% when compared to the first seven months of 2010 when 25,754 permits were issued. Permits for single-family homes were down 18% while permits for multifamily units were up 23%.

Mike Winn, president of the California Building Industry Association, called the July figures "disappointing" and blamed the slump on the lousy economy. He said home builders are struggling to keep pace with last year's production rate, which was the second lowest year for housing production in history.

"Builders are still competing with a glut of foreclosed and distressed properties while buyers are sitting on the sidelines due to tight lending restrictions and the current climate of economic uncertainty," said Winn. "This has created the ‘perfect storm' that continues to work against us, but the construction industry is resilient and we will navigate through this just as we've done in the past."

Meanwhile, the research board has dropped its 2011 forecast to 46,700 total units, down from its previous estimate of 51,000. That would put 2011 just a hair ahead of 2010's 44,762 permits, but still down from the 64,962 units permitted in 2008.
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Real Estate • How to rescue the housing market:

But some housing experts argue that the administration should go in a different direction than it has in the past. Instead, they say it's time to focus on pushing many of those delinquent borrowers through the foreclosure process and putting foreclosed properties back into use. ________________________________________________
How to rescue the housing market: Foreclosures!

By Tami Luhby August 31, 2011: 5:27 AM
NEW YORK (CNNMoney) -- If the Obama administration really wants to save the housing market, it should speed up the foreclosure process -- not prolong the inevitable, experts say.

Four years into the housing crisis, the real estate market is still teetering on the edge. The Obama administration has tried one program after another to stem the tide of foreclosures with limited success. And it is continuing to look for ways "to ease the burden on struggling homeowners," though no new initiative is imminent, the White House said this week.

While some of the 2.2 million loans in foreclosure can still be saved, many are too far gone, they say. Some 37% have not made a payment in more than two years, while another 34% have not made a payment in 12 to 23 months, according to Lender Processing Services.

"Loans enter into foreclosure, but never come out," said Thomas Lawler, founder of Lawler Economic & Housing Consulting. "If this keeps going on, you have a continual overhang that never goes away."

Delaying foreclosure increases the percentage of homeowners who'll likely never catch up, Lawler said. In 2009, only 6% of delinquent borrowers were more than two years behind. And it means vacant properties still in limbo could fall even further into disrepair, hurting the value of the surrounding housing market.
Lawler is not the first to warn about the consequences of slowing the foreclosure process. Since the housing crisis began, several experts cautioned that foreclosure prevention efforts may only prolong the pain.

Accelerating foreclosures is tricky, however, especially since it is largely the purview of the states. But the administration could work with state officials to speed the process, especially on vacant homes, he said.

The push would come at a time when many mortgage servicers have slowed foreclosure efforts as they resolve shoddy paperwork practices. Foreclosure filings in July dropped to their lowest level since November 2007, due to processing delays and foreclosure prevention measures, according to RealtyTrac.

Getting rid of the glut

Another key to helping the housing market is facilitating the resale of homes that have already been foreclosed upon, experts said. This glut of vacant properties will continue to weigh on home values until they are sold.

"They can't be a glacier hanging over the market with everyone waiting for it to fall," said Jim Gaines, research economist at The Real Estate Center at Texas A&M University. "Those properties have to clear the market."
A first step could be to sell off the foreclosed properties owned by Fannie Mae, Freddie Mac and the Federal Housing Administration. Collectively, they own 248,000 homes, about 31% of the foreclosure inventory.

The administration and the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, are already looking for ways to unload these foreclosed homes. Earlier this month, they put out a request for ideas, including possible bulk sales of inventory. Also, they are interested in turning many of these properties into affordable rentals, which are sorely lacking in many communities. Experts interviewed agree this would be a good move for the market.

To entice investors to purchase these homes, as well as other foreclosed properties owned by banks, the administration could advocate for changes to the tax code, Gaines said. For instance, more favorable capital gains or depreciation rules could attract buyers.

The case against foreclosure

Of course, not everyone agrees that pushing people through the foreclosure process is the best solution to the housing crisis. David Min, associate director for financial markets policy at the Center for American Progress, argues that there are many homeowners who can be saved if their payments can be adjusted to affordable levels or if some of their principal is forgiven. This particularly applies to those who are only a few months behind. Foreclosure is very costly for servicers, homeowners and neighborhoods, he said.
"There are a lot of other options that make more sense" than foreclosure, Min said. "It's just so destructive to value. We should be pulling every lever we can."

Mediation, for instance, could help some homeowners avoid foreclosure, he said. Some 23 states and the District of Columbia currently have programs that require mortgage servicers to sit down with borrowers and discuss the homeowners' options, though many began only in the last year. More than 70% of mediations end in a settlement, often restructuring the mortgage to a sustainable level, according to the center. Helping those still current with their payments can also give the housing market and the economy -- a lift,
albeit a somewhat marginal one, experts said.

For instance, the administration could revamp its refinancing program aimed at allowing underwater homeowners to take advantage of today's lower interest rates. Improvements could include reducing some of the upfront costs and underwriting requirements.

Lowering borrowers' monthly payments would give people more money to spend. And, for those on the edge, it could make it more likely that they will stay in their homes.

"It would be helpful to some borrowers with high rates," Lawler said. 

Thomas Lawler, founder of Lawler Economic & Housing Consulting.

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Home Prices Rise Ever So Slightly

Wednesday, August 31, 2011
Home prices rose in July for the fourth consecutive month, according to CoreLogic, which tracks the market through its house price index.

National home prices -- including distressed sales -- increased 0.8% in July from June, CoreLogic reported. But values are down 5.2% from July 2010.
When foreclosure and short sales are excluded, home prices rose 1.7% in July and are down only 0.6% from a year ago.

CoreLogic chief economist Mark Fleming expects the upward trend in prices will end in late summer. "At that point the month-over-month growth will most likely turn negative," he said.
Economists at IHS Global Insight expect foreclosures, excess supply and weak demand will push prices down another 5% to 10%.

"Should the economy slip into a recession (a 40% probability in our view) the unemployment rate will climb, driving foreclosures up, leading to an even larger drop in home prices," said Global Insight economist Patrick Newport.
By Brian Collins - National Mortgage News